Eight Questions to Ask When Obtaining a Mortgage

Unlike borrowing against your home, financing a commercial
property, such as a store, office or apartment building, can be a
confusing and frustrating experience. Borrowers are often subject to
unwieldy demands and requirements imposed by traditional lenders,
such as banks, since these lenders are regulated and generally averse
to risk-taking.

Here is a list of the eight most important questions every
prospective borrower should ask before selecting a commercial
mortgage lender.

1. Is the loan assumable?

Unlike residential mortgages, it is standard for commercial
mortgages to charge prepayment penalties for early repayment of a
loan. If you think there is a chance you may be selling the property at
some point in the future, ask your lender if the loan is assumable by
your property buyer.

2. Is there a balloon payment?

While balloons may be a useful option for residential borrowers
looking to lower their rate, it is a requirement of most commercial
programs for customers to pay off their mortgage early, generally in
three to 10 years. Programs which do not require balloons are superior
to those that do.

3. What is the maximum amount I can borrow?

Really the first question is one you must ask yourself: what are
my capital needs both now and in the future? The majority of borrowers
would actually prefer to pay a slightly higher interest rate in order to
maximize the amount of money they can borrow. More cash on hand
means more capital to invest in your business or additional real estate.

4. How soon will I have a solid commitment, and how soon
can I close?

If you are shopping for a property and need to be pre-qualified for
financing, or if you are just in a plain hurry to close, make sure you get
a clear picture of your lender’s timeframes. Unlike residential
mortgages, traditional commercial lenders often must review your
historical income statements, asset statements and other
documentation before giving you the thumbs up on your loan
application.

5. How much financial reporting is required, and what
covenants must I make?

Beware. When obtaining a commercial loan, many borrowers are
not fully aware of all of the future obligations imposed by the lender,
beyond simply making the monthly payment. Be certain to ask your
lender about reporting requirements and covenants. If the risk is not
acceptable to you, find another lender.

6. Will I have to maintain minimum assets or deposits?

If you are looking to a bank for your commercial loan, ask your
loan officer if you will be required to hold a minimum level of deposits at
the bank in order to qualify for the loan.

7. What are the documentation requirements?

Locating and providing copies of leases, operating statements,
tax returns, asset statements and other financial documents can be
quite challenging and time consuming. Do our research.

8. What are the total costs associated with getting the loan?

Be sure to ask about all costs you will be responsible for,
including lender points, property appraisal, property survey,
environmental reports, and any legal fees that might be associated with
the loan.